FTX’s FTT token plunges 80%, wiping out over $2 billion in value
FTT, the native token of crypto exchange FTX, lost most of its value after rival Binance, the world’s largest cryptocurrency firm, announced plans to acquire the company.
The coin traded at around $22 on Monday and fell below $5 on Tuesday afternoon in New York. The sale wiped out more than $2 billion in value in the space of 24 hours.
Binance CEO Changpeng Zhao, known as CZ, wrote in a tweet to his more than 7 million followers that he expects FTT to be “very volatile in the coming days as that things change”.
Cryptocurrencies as a class sank on Tuesday, with bitcoin and ethereum both plunging more than 10%. Crypto exchange shares Coinbase also saw a double-digit percentage decline, while Robin Hoodthat traders use to buy and sell crypto, fell around 19%.
“This is probably the most dramatic deal I’ve ever seen in the history of the crypto industry,” said Castle Island Ventures partner Nic Carter, which focuses on blockchain investments. . “It essentially consolidates the two largest offshore exchanges into one entity, an absolute blow to CZ and Binance – and truly a disaster for FTX.”
The deal between the two companies is non-binding and follows what FTX CEO Sam Bankman-Fried called a “cash crunch” at his business, which was valued at $32 billion in the first round. roundtable earlier this year.
The acquisition only affects FTX’s non-US business. The US division will remain independent of Binance. However, according to a 2021 audit, the US portion of FTX only accounted for 5% of total revenue. FTX is based in the Bahamas, where Bankman-Fried resides.
Like many crypto companies, FTX created its own token called FTT, which could be purchased like bitcoin although it was not as widely available. FTT owners were promised lower trading costs and the opportunity to earn interest and rewards like waiving blockchain fees. Although investors can profit from the rise in value of FTT and other coins, they are largely unregulated and are particularly susceptible to market downturns.
In 2019, Binance announced a strategic investment in FTX and said that as part of the deal, it had taken “a long-term position in the FTX (FTT) token to help enable sustainable growth in the ecosystem. FTX”.
Due to Binance’s central position in crypto and its large ownership of FTT, the company had a particular influence on FTX and the market view on the company. Investor confidence in FTX was shaken over the weekend when Zhao tweeted that Binance would sell its FTT holdings.
Zhao said Binance has about $2.1 billion worth of FTT and BUSD, its own stablecoin.
“Due to recent revelations that have come to light, we have decided to liquidate any remaining TTFs on our books,” he said.
FTT, which peaked at around $78 in September 2021, was trading near $25 the day before Zhao’s tweets. It dipped below $16 on Monday, then fell off a cliff after the deal was announced on Tuesday. According to CoinMarketCap, the value of FTT’s outstanding supply is around $735 million, up from $2.9 billion on Monday.
Bankman-Fried said that in the 72 hours leading up to Tuesday morning, there had been around $6 billion in net withdrawals from FTX, according to Reuters. On an average day, net inflows run into the tens of millions of dollars.
“The fact that Sam was willing to make this deal suggests that FTX has been deeply weakened in terms of the bank run that has begun within the last 48 hours,” Carter said. “We don’t know exactly what the problem was, if they were lending or playing with user deposits.”
FTX did not respond to CNBC’s multiple requests for comment.
Earlier on Tuesday, FTX halted withdrawals from its platform, after frightened investors tried to withdraw their funds – in a move that resembled the collapse of other crypto companies this year, including Celsius, Voyager Digital and Three Arrows Capital.
News about FTT has raised concerns about Alameda Research, Bankman-Fried’s trading company and sister company to FTX. A report last week on the state of Alameda’s finances showed that much of its balance sheet is concentrated in FTT and that its various businesses have used the token as collateral. Alameda disputed this claim, saying that FTT only represents a portion of its total balance sheet.
“If the price of FTT drops significantly, Alameda could face margin calls and all kinds of pressure,” said Jeff Dorman, chief investment officer at digital asset firm Arca. “If FTX is Alameda’s lender, everyone is going to be in trouble.”
— CNBC’s Kate Rooney and Tanaya Macheel contributed to this report.